Conservative Angela Merkel (search) struck a power-sharing deal Monday that will make her the first woman and politician from the ex-communist east to serve as Germany's chancellor, forging a coalition with ousted leader Gerhard Schroeder's (search) party to reform the faltering economy.
The country's two biggest political forces were forced into talks on forming a joint government after a Sept. 18 election gave Merkel a victory — but with a margin so slim Schroeder's party demanded equal treatment in a "grand coalition." To resolve the impasse, the Social Democrats (search) gave up Germany's leadership, but the party secured the bulk of the ministries, including the prestigious Foreign Ministry.
"I feel good," she told reporters with a broad smile. "But I have a lot of work ahead of me."
Both sides agreed to start formal negotiations on a new government next Monday. Merkel said both sides aim to complete them by Nov. 12, after which they will need endorsement by party conventions.
Under the terms of the agreement, the Social Democrats would head the foreign, finance, labor, justice, health, transport, environment and development ministries.
Merkel's Christian Democrats (search) and her sister party, Edmund Stoiber's Christian Social Union (search), would get the economy, defense, interior, agriculture, family and education portfolios. With Merkel as chancellor and her chief of staff also a Cabinet-level post, the two sides would have equal representation at the Cabinet table. The parties have the right to propose their ministers.
There was no word Monday on whether Schroeder, Germany's leader for the last seven years, might play any role in a new government. Franz Muentefering, the chairman of his party, said he would take part in the coalition talks but that there had been no other decisions.
Merkel said she was optimistic about agreement on foreign policy, stressing the importance of improving relations with the United States strained by Schroeder's opposition to the war in Iraq. She sidestepped the parties' sharp disagreement over whether Turkey should join the EU (search) — a bid that she opposes — saying only that "we'll see" how membership talks progress.
It remained unclear who might be the next foreign minister — or, indeed, who else might serve in the Cabinet, with only the economy minister's job decided. That is expected to go to Stoiber, the governor of prosperous Bavaria.
"The great challenge of the next years will be fighting unemployment, so this coalition has to do everything to make sure the competitiveness of the economy is OK, that there is growth and that unemployment can be fought effectively," Muentefering said.
Germany's 11.2 percent jobless rate helped drag Schroeder's outgoing government to defeat. But whoever enters the new Cabinet, the new government's economic reform efforts may bear little resemblance to Merkel's campaign pledges.
The two sides agreed that Germany's complex income tax system should be simplified and loopholes reduced, but agreed to scrap plans by Merkel to cut tax breaks for Sunday and night shifts. Her proposal to finance a cut in nonwage labor costs by increasing value-added tax was up in the air.
Conservatives and Social Democrats said they would keep in place the system under which unions and employers negotiate industrywide wage deals, although they left open the door to loosening the rules. Merkel wanted to give firms and employees more leeway to opt out of those deals.
Parliament must convene by Oct. 18 but is not obliged to vote immediately on a new chancellor if coalition talks are still ongoing.
Merkel's forces have 226 votes in the 614-seat parliament, while the Social Democrats have 222. A coalition needs 308 seats for a majority.